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LINKS FOR ADDITIONAL READING FOR THIS VIDEO & ALL INFO IN TEXT DOWN BELOW
BTC Futures explained: https://cointelegraph.com/explained/bitcoin-futures-explained
What is a futures contract?: https://www.investopedia.com/terms/f/futurescontract.asp
Different Perspective on ETH Futures: https://thebitcoinnews.com/understanding-the-consequences-of-an-ethereum-eth-futures-market-in-the-us/
There’s a reason why these big exchanges like the CME and the Cboe have been waiting on this decision from the SEC. These big exchanges needed to be sure that Ethereum wouldn’t fall under the SEC’s jurisdiction. Now that there is no conflict, there’s not much in the way to prevent these big exchanges from adding Ethereum futures contracts to their listings.
According to investopedia.com, a futures contract is a legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the…future!
So let’s say you want to sell Ethereum on some date in the future, but you want to set the price right now. Since the price of cryptocurrencies is pretty volatile, there is a lot riding on this future date and price. You can either gain a lot by setting a price that is higher than what the current market price is at that future date, or you can lose a lot by setting a price that is lower than what the current market price is at that future date, and vice versa for those who want to be the buyer of a futures contract.
I referenced it earlier in this video, but you may remember when Bitcoin futures were first unleashed. This was a big deal for a couple reasons, first, it was a way for big time investors to get exposure to Bitcoin. And second, it was a way for these big time investors to begin shorting Bitcoin.
The timing of these Bitcoin futures contracts was nothing less than ideal for those wanting to short Bitcoin. These BTC futures were released right when Bitcoin began its epic ascent to $20,000. No doubt it was this price spike that also spiked the interest of these exchanges. Ironically, it shouldn’t be hard to see now with hindsight how these investors could see a great opportunity to short Bitcoin.
They saw the price breaking out well past its previous all time highs and now they have a chance to short it without having a whole lot of exposure to the coin itself.
When all of these new futures contracts expired, and these sellers had to sell at certain prices, it was the beginning of the decline into a bear market for Bitcoin, of course with the other alt coins following suit.
So it’s quite understandable why many people are nervous to see Ethereum futures now on the table for these big exchanges. But I read an interesting article which presented an alternative perspective:
Bitcoin futures certainly ushered in the bear market, but with prices being as low as they have been for as long as they have been, perhaps these big investors can see the potential gains to be made by going long on futures contracts. If that’s the case, it’s not hard to imagine that Ethereum futures could very well help lift cryptocurrencies out of this bear market and into the bull market that we all know and love.